Greek Default-Swap Costs Only Beaten by Venezuela: Chart of the Day - Bloomberg

Greek Default-Swap Costs Only Beaten by Venezuela: Chart of the Day

By John Glover - Jun 30, 2010

The cost of insuring Greek government debt is now second only to that of Venezuela, where President Hugo Chavez has declared “economic war” against the “bourgeoisie.”

The CHART OF THE DAY shows that credit-default swaps on Greek government bonds, in red, have overtaken Argentina, which failed to pay more than $80 billion in December 2001. The Latin American nation still has more than $6 billion of defaulted securities outstanding after its second attempt to restructure.

“Greece isn’t Argentina,” said Niels Jensen, a portfolio manager at London-based investment firm Absolute Return Partners LLP, which oversees more than $300 million. “From an economist’s point of view, there’s no question that it’s much, much worse.”

Greece’s debt burden last year was equivalent to about 115 percent of gross domestic product, compared with a level of about 60 percent for Argentina when it defaulted. Credit swaps signal there’s a more than 67 percent chance the southern European nation won’t meet its commitments within the next five years.

Venezuela’s Chavez, a 55-year-old former army paratrooper who champions a socialist ideology, oversees an economy that may contract 2.5 percent this year, according to Bank of America Corp.

“You’ve declared an economic war against me, so I accept your challenge, stateless bourgeoisie,” Chavez said June 2 after business chambers criticized his handling of the economy. “I’m declaring an economic war with the help of the people and workers.”

Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should an issuer fail to adhere to its debt agreements.